Marijuana business owners need to be mindful of products liability laws and how they pertain to defective cannabis products. Though most state’s product liability laws favor those not directly involved in manufacturing a defective product, there are circumstances under which retailers can be held liable for a defective product, even without any knowledge of the defect. Contrary to popular belief, just because a retailer did not make the defective product it sold, does not mean it cannot be held liable for it.
In about half of all states, a retailer who sells a defective product to a consumer is subject to liability for any harm that befalls that consumer due to the defect. This means that a retailer selling, for example, an edible, could be held liable if that edible was tainted in the manufacturing process and a consumer subsequently fell ill, even if the retailer had nothing to do with the manufacturing process. The rationale behind imposing such liability on retailers is that it will incentivize sellers to pressure their manufacturers to make better, safer products, and that sellers can either adjust their pricing to account for this liability, or contract with manufacturers for indemnification.
Even those states with product liability laws that provide exceptions for retailers do not typically let them entirely off the hook. A product seller other than a manufacturer is typically liable to an injured consumer if the consumer’s harm was caused by the negligence of the seller, the breach of a warranty made by the seller, or the intentional misrepresentation of facts about the product by the seller. Most states also typically deem product sellers to have the liability of a manufacturer if there is no solvent manufacturer or if the court finds it highly probable that the consumer would not be able to enforce a judgment against any manufacturer. This means that if the manufacturer of the defective product is unable to pay damages to the injured consumer, the retailer can find itself liable for the consumer’s injury, even without being found to have done anything wrong. In an industry as new as cannabis, it is certain that some manufacturers will succumb to insolvency, so the possibility of products liability attaching to retailers is not remote.
The takeaway here is that you as a cannabis retailer should not assume that you cannot be held liable for defects in the products you sell. You can reduce your risk by, among other things, doing the following:
1. Set up your cannabis business so as to protect yourself from personal liablity. For more on this, check out Cannabis Businesses And Corporate Separateness and Cannabis Business and Corporate Separateness, Part II
2. Vet both the manufacturers with whom you work and the products you sell.
3. Use appropriate packaging and warning labels on the products you sell. For more on this, check out Cannabis Products and Dosing: Educate, Educate, Educate and Label, Label, Label and Pot Puppies? Let’s Talk Labeling and Packaging. NOW.
4. Have contracts with your manufacturers that specify the manufacturer’s product safety requirements, the manufacturer’s liability for defects or other problems, the manufacturer’s agreement to fund your defense costs if you are sued over a problem arising from the manufacturer’s product, and the requirement that the manufacturer maintain adequate insurance.
5. Get good insurance for your own business.